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The legal relationship between an agent and a principal. See agency relationship.
An agreement between a principal and an agent that describes the scope of the
agent's actual authority. See agent and principal.
A mutual savings bank that does not sell its own savings bank life insurance policies
to the public but, instead, sells such policies as an agent for an issuing bank. An
agency bank only accepts applications, collects premiums, and provides service for
its policyowners. See also issuing bank and savings bank life insurance (SBLI).
agency by appointment
An agency relationship that is created when a principal appoints an agent to act on
the principal's behalf. See agency relationship. Contrast with agency by ratification.
agency by ratification
An agency relationship that is created when the principal ratifies a purported agent's
unauthorized act. See agency relationship. Contrast with agency by appointment.
In law, the relationship between two parties by which one party, the agent, is
authorized to perform certain acts on behalf of the other party, the principal.
A distribution system in which insurance companies use their own commissioned
agents to sell and deliver insurance policies. The agency system is the most
common system for distributing individual life insurance products and includes the
branch office distribution system and the general agency distribution system. Also
called the ordinary agency system. See also branch office distribution system,
brokerage distribution system, and general agency distribution system.
A party who is authorized by another party, the principal, to act on the principal's
behalf in contractual dealings with third parties. See also insurance agent.
Career agents who place business with companies other than their primary
companies. Also known as agents of other companies, surplus brokers, or simply
agent of record
The agent or broker who is recognized by the insurer as the person to whom the
commission is to be paid.
agent-owned reinsurance company (AORC)
A captive reinsurance company formed by an insurance company and owned by a
group of the company's agents. The company insures all business written by those
agents with the captive so that the agents can share in the profits of their own labor.
The portion of the insurance application in which the agent reports anything he or
she knows or suspects about the proposed insured that is not reported by the
applicant or proposed insured.
age of majority
The age at which a person has the legal capacity to enter into and be bound by a
aggregate funding methods
Pension plan funding methods in which the amount of contributions necessary to
fund a plan is determined in the aggregate for all plan participants, rather than
separately for each individual plan participant. Contrast with individual funding
aggregate mortality table
A mortality table based on the experience of all insured lives, including mortality
rates both during and after the select period. The mortality rates of an aggregate
mortality table fall between those of the select and the ultimate mortality tables. See
also mortality tables, select mortality table, select period, and ultimate mortality
A contract under which one party provides something of value to another party in
exchange for a conditional promise, which is a promise that the other party will
perform a stated act if a specified, uncertain event occurs. Insurance contracts are
aleatory because the policyowner pays premiums to the insurer, and in return the
insurer promises to pay benefits if the event insured against occurs.
In the United States, a company that is incorporated under the laws of another
country. Compare to domestic corporation and foreign corporation.
alienation of benefits
In pension planning, the assignment of a plan participant's benefits to an
individual other than the participant. In the United States, ERISA generally
prohibits the alienation of benefits, although exceptions to this rule include the
use of a participant's vested benefit as collateral for a loan. The ERISA
prohibition on alienation of benefits prevents creditors from attaching an
individual's pension benefits.
In health insurance, a deductible which need only be satisfied once during a
given period of time. If the period of time is a calendar year, as it usually is, then
this type of deductible is known as a calendar year deductible. Contrast with per-
A method of funding a pension plan in which a portion of the total plan funds is
allocated to each participant. This type of funding is often achieved through the
purchase of annuities or insurance contracts for each participant. Contrast with
American Council of Life Insurance (ACLI)
In the United States, an organization which collects and disseminates data on life
An accounting report that insurers must file each year with the appropriate
regulatory agency. This report contains detailed accounting and statistical data
that regulators use to evaluate a life and health insurance company's solvency
and its compliance with insurance laws.
(1) The person designated to receive annuity payments. (2) The person whose
lifetime is used as the measuring period to determine how long benefits are
payable under a life annuity.
(1) A series of payments made or received at regular intervals. (2) A contract that
provides for a series of payments to be made or received at regular intervals.
There are many kinds of annuities. For the annuities identified in this glossary,
see annuity certain, annuity due, annuity immediate, deferred annuity, deferred
life annuity, disabled life annuity, flexible premium annuity, group deferred
annuity, immediate annuity, joint and survivor annuity, level premium annuity, life
annuity, life annuity with period certain, refund annuity, single premium annuity,
single premium deferred annuity (SPDA), straight life annuity, temporary life
annuity, temporary life annuity due, variable annuity, whole life annuity, and
whole life annuity due.
An annuity that provides a benefit amount payable for a specified period of time
regardless of whether the annuitant lives or dies.
A series of payments in which the payments are made at the beginning of each
interval of time.
A series of payments in which the payments are made at the end of each interval
annuity mortality table
A tabulation of probabilities of dying at each age. Used by actuaries to calculate
premiums and reserves for annuities in which benefits are paid only if a
designated person is alive. Annuity mortality tables usually project lower rates of
mortality than do mortality tables that are used for life insurance. See also
The time between each benefit payment made under an annuity contract.
The term used for ownership shares in a variable annuity's separate-account
fund after the accumulation period has ended. Annuity units are bought with
accumulation units and are used to determine benefit payment amounts. See
also accumulation units.
The tendency of people with a greater-than-average likelihood of loss to apply for
or continue insurance to a greater extent than do other people. Also called
adverse selection or selection against the insurer.
Authority that is not expressly conferred on an agent but that the principal either
intentionally or negligently allows a third party to believe the agent possesses.
See agent and principal. Compare to express authority and implied authority.
The party applying for an insurance policy.
A form that must be completed by an individual or other party who is seeking
insurance coverage. This form provides the insurance company with much of the
information it will need to decide whether to accept or reject the risk.
approval type temporary insurance agreement
An agreement issued in conjunction with a conditional premium receipt that
provides temporary life insurance coverage as of the date the insurer approves
the proposed insured as a standard risk. See also conditional premium receipt
and temporary insurance agreements. Compare to insurability type temporary
An early method of funding life insurance under which members of the plan were
charged in advance for the amount of money that the administrators estimated
would be needed to pay each year's death claims. Also called the pre-death
assessment method. See also mutual benefit method.
The process of investing, purchasing, selling, and otherwise adjusting an
insurance company's asset holdings so that cash is available when it is needed
to cover the company's liabilities.
All things of value owned by an individual or organization. Examples of assets
include cash, data processing equipment, and investments. Assets are shown on
the balance sheet of a life insurance company's Annual Statement as required by
law or by insurance department ruling.
The amount of assets that any block of insurance policies will have accumulated
by a given time.
asset share calculation
A computation that simulates the way in which the assets of a block of policies
should grow, depending on various assumptions about future interest rates,
mortality, morbidity, expenses, lapses, etc.
The party to whom all or certain contractual rights are transferred under an
absolute or collateral assignment.
(1) The transfer of ownership rights in a life insurance policy or other type of contract
from one party to another. (2) The document that causes the transfer of
ownership rights to go into effect. See also absolute assignment and collateral
assignment of benefits
An authorization directing an insurer to make payment directly to a provider of
benefits, such as a physician or dentist, rather than to the insured.
The person or party who transfers certain contractual rights under an absolute or
association group insurance
Group insurance extended to the members of a trade, professional, or other
A reinsurance agreement by which one company permanently transfers full
responsibility for a block of policies to another company. After the cession, the
ceding company is no longer a party to the insurance agreement.
The current age of the insured. The age of the insured at the time the insured's
policy was issued plus the number of years elapsed since the policy was issued.
attained age conversion
The changing of a life insurance policy from one form of insurance to another
(such as from term life insurance to whole life insurance) at a premium rate that
is based on the age the insured person has reached at the time the change takes
Attending Physician's Statement (APS)
A written statement from a physician who has treated, or is currently treating, a
proposed insured or an insured for one or more conditions. The statement
provides the insurance company with information relevant to underwriting a risk
or settling a claim.
automatic dividend option
For a particular life insurance policy, the dividend option that applies in the event
the policyowner does not choose an option. See dividend options.
automatic nonforfeiture option
For a particular life insurance policy, a specified nonforfeiture benefit that
becomes effective automatically when a renewal premium is not paid by the end
of the grace period and the policyowner has not elected another nonforfeiture
option. See also nonforfeiture options.
automatic premium loan (APL)
A life insurance nonforfeiture option that allows the insurer to pay overdue
premiums on a policy by establishing a loan against the policy's cash value. See
also nonforfeiture options.
automatic reinsurance treaty
A reinsurance agreement in which the reinsurer agrees, for a stipulated type of
risk, to accept each risk or a portion of each risk submitted by the ceding
company, up to a certain limit, provided the ceding company insures up to its
usual retention limit. In this agreement, the ceding company assumes full
underwriting responsibility for all cases reinsured.
average indexed monthly earnings
In the United States, the figure on which social security disability, retirement and
other benefits are based. The figure is an average of the monthly earnings on
which a worker has paid social security tax. The figure is indexed, that is,
adjusted to compensate for inflation.
A life insurance contract provision which specifies that the death benefit is not
payable if the insured dies as a result of certain aviation activities.
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Making the effective date of an insurance policy earlier than the date of the
application so that the premium rate will be lower. State law usually limits back-
dating to not more than six months. Also called dating back.
A life insurance policy (usually a universal life insurance policy) in which most of
the expense charges occur when the policyowner surrenders the policy or makes
cash withdrawals from the policy. Such charges are usually highest in the early
policy years and are often eliminated at the end of a certain number of years.
See also front-loaded policy and universal life insurance.
The practice of providing a higher accrual of pension benefits during a
participant's later years of employment. The practice is designed to encourage
and reward long service.
The grouping of life insurance policies according to death benefit amounts for the
purpose of calculating loading.
basic death benefit
The death benefit according to the terms of the original, basic contract of a life
insurance policy. The basic death benefit does not include the benefit for any
supplementary riders, such as an accidental death benefit (ADB) rider. For
policies whose death benefit remains constant, the basic death benefit is
equivalent to the face amount. Compare to death benefit and policy proceeds.
basic mortality table
A mortality table without a safety margin. Also called a basic experience table.
See also mortality table and safety margin.
Under dental insurance, dental services, such as fillings, periodontics, and oral
surgery, which are often covered at 80 percent of their reasonable and
(1) From an investment point of view, a provision that allows insurance companies to
invest a small percentage of their assets generally without regard to statutory
restrictions. (2) From an accounting point of view, a clause which permits life and
health insurers to hold a specified amount of their assets as nonauthorized
assets, which are not restricted in the same way as authorized assets.
The person or other party designated to receive life insurance policy proceeds.
See also contingent beneficiary, irrevocable beneficiary, primary beneficiary, and
The amount of money paid when an insurance claim is approved. Also called the
benefit of survivorship
Describes the fact that annuity payments will be made as long as the designated
recipient is alive at the time the payment is due. This concept is used in the
calculation of amounts due under life insurance settlement option.
Under a group insurance plan, a table or schedule which specifies the amount of
coverage provided for each class of insured. Insureds are often classified with
reference either to earnings or to rank or position. Also known as schedule of
A pension plan which specifies that each participant's benefit will be calculated
according to the final-average formula.
binding premium receipt
A type of initial premium receipt that makes insurance coverage effective
immediately but only until the insurance company either rejects the application or
approves it and issues a policy. Compare to conditional premium receipt.
A rule included in some coordination of benefits provisions that specifies the
manner in which benefits for dependent children are to be coordinated between
two insurance plans. According to the birthday rule, benefits for dependent
children will be paid by the plan of the parent whose birthday falls earlier in the
Group mortality rates that are based partially on a group's own experience and
partially on manual rates. Blended rates are used to determine the appropriate
group insurance premium rates for intermediate-size groups. See also
experience rating and manual rates.
Blue Cross plan
A hospital expense insurance plan offered by a regionally-operated health care
provider affiliated with a large national nonprofit health care organization. This
plan generally provides benefits on a "service-type" basis.
Blue Shield plan
A physician expense insurance plan offered by a regionally-operated health care
provider affiliated with a large national nonprofit health care organization. This
plan generally provides benefits on a "service-type" basis.
The individual in charge of a field office of an insurance company that uses the
branch office distribution system. Also called a general manager. See also
branch office distribution system.
branch office distribution system
A common system for selling individual life insurance. Under this system, the
soliciting agents who work out of a branch office are under contract to the
insurance company, not to the branch manager, and the agents receive
commissions directly from the insurance company. The branch office manager,
supervisors, and clerical personnel in the field office are employees of the
insurance company, and these employees are subject to the same types of
controls normally exercised by an employer. See also agency system, branch
manager, and general agency distribution system.
break in service
The length of time between the date an employee leaves a firm and the date the
employee resumes working for that firm. For pension and employee benefit plan
purposes in the United States, a plan participant cannot be deprived of benefits
which accumulate before a break in service unless the break is longer than (1)
five years or (2) the amount of time that the participant has been employed when
the break commences, whichever is greater.
(1) An insurance salesperson agent who sells insurance products for more than one
insurance company. (2) For a career agent, to submit insurance applications to
companies other than the agent's own company.
brokerage distribution system
A distribution system that relies on commissioned agents, called brokers, who
sell the products of more than one insurance company.
A salaried insurance company employee or an independent agent whose
responsibility is to appoint brokers on behalf of the company and to encourage
brokers to sell the products of a particular insurance company.
An agency operated by an independent general agent who is under contract to a
number of insurance companies. Also known as a brokerage general agency.
A firm that provides information or advice to its customers regarding the sale
and/or purchase of securities and that serves as a financial intermediary between
buyers and sellers by manufacturing or acquiring securities in order to market
them to its customers.
bundled insurance product
An insurance product in which the mortality, investment, and expense factors
used to calculate premium rates and cash values are not identified separately in
the policy. Traditional whole life insurance is an example of a bundled insurance
product. See also unbundled insurance product.
A type of business insurance designed to provide funds so the remaining
partners in a business, or the remaining stockholders in a closely-held
corporation, can buy the business interest of a deceased or disabled partner or
stockholder. See also partnership insurance and stock repurchase insurance.
Insurance that is intended to serve the insurance needs of a business rather than
the needs of an individual.
In the United States, a publication that many states require insurance companies
to give to an applicant for life insurance. The Buyer's Guide helps the applicant
make an informed choice among policies.
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An employee benefit plan which gives each employee several choices as to the
types and/or amounts of group benefits. Also known as a flexible benefit plan.
An individual health insurance policy that can be terminated at any time by the
insurer. See also conditionally renewable policy, guaranteed renewable policy,
noncancellable and guaranteed renewable policy, noncancellable policy, and
optionally renewable policy.
The largest amount of insurance an insurer or a reinsurer is willing or able to
underwrite. The term can refer to an insurer's capacity on one individual or to the
insurer's capacity for all its business.
A compensation plan used in some health maintenance organizations (HMOs) in
which a physician is paid a flat amount per year per subscriber who has elected
to use that physician. For that amount, the physician must treat the subscriber as
often as necessary during that year. See also fee schedule basis.
See exclusive agents.
captive insurance company
An insurance company, formed and controlled by a separate company, whose
purpose is to provide insurance to the controlling company. Companies which
form captive insurance companies include all types of companies which extend
credit to customers, including banks and retailers. See also agent-owned
reinsurance company (AORC).
A full-time commissioned salesperson who works out of an insurance company's
field office, holds an agent contract with that company, and sends all, or almost
all, of his or her business to that company. A career agent may occasionally
broker business with other companies.
career average (career earnings) benefit formula
A type of defined benefit formula in which the retirement benefit amount is
derived on the basis of a participant's compensation during the entire period of
participation in the plan. See also defined benefit formula. Contrast with final
average benefit formula.
A provision found in most medical expense policies stating that expenses
incurred during the last three months of a benefit period that are used to satisfy
the current benefit period's deductible may be used to satisfy any or all of the
following benefit period's deductible.
A cost-containment program designed to identify alternate, less costly methods
of treatment for seriously ill patients without sacrificing the quality of care a
patient receives. Also known as catastrophic claim management, large claim
management, or medical case management.
cash-balance pension plan
A type of defined benefit plan in which each participant has an account which is
credited with amounts reflecting the employer's contributions and amounts
reflecting investment interest. The balance in the account indicates the
participant's accrued benefit. Upon retirement or withdrawal, the participant may
receive the full account balance in a lump sum, provided that the benefits are
fully vested, or may use the account balance to purchase an annuity.
cash payment option
A life insurance policy dividend option under which policy dividends are paid to
the policyowner in cash.
cash premium accounting system
A premium accounting system used for industrial insurance. Under this system,
the agent informs the home office of the amount collected on each policy. The
home office then updates the policy records to reflect these collections and
prepares new route collection records. Contrast with advance and arrears
cash refund option
A form of the life income option with refund which specifies that any proceeds
remaining when the beneficiary dies will be paid in a lump sum to the contingent
payee. Contrast with the installment refund option.
cash surrender value
In a life insurance policy, the amount of money, adjusted for factors such as
policy loans or late premiums, that the policyowner will receive if the policyowner
cancels the coverage and surrenders the policy to the insurance company. Also
called the net cash value. Compare to cash value.
cash surrender value option
A life insurance policy nonforfeiture option which specifies that a policyowner
who discontinues premium payments can elect to surrender the policy and
receive the policy's cash surrender value.
In a life insurance policy, the amount of money, before adjustment for factors
such as policy loans or late premiums, that the policyowner will receive if the
policyowner allows the policy to lapse or cancels the coverage and surrenders
the policy to the insurance company. Cash values are a feature of most types of
permanent life insurance, such as whole life and universal life. Compare to cash
surrender value. Also called inside build-up and policyowner's equity.
causal relation requirements
Proof required by statute in Kansas, Missouri, Rhode Island, and Puerto Rico to
show that the facts misrepresented in an application for insurance were related to
the loss insured against.
In a reinsurance transaction, the insurer that purchases reinsurance to cover all
or part of those risks that it does not wish to retain in full. Also called the direct
insurer, direct writer, or direct-writing company.
A payment that will definitely be made under any circumstances, its payment not
being contingent upon any predesignated condition.
certificate of assumption
In assumption reinsurance, a certificate sent to each policyholder whose policy
has been ceded to give the policyowner (1) notice of the assumption and (2)
information concerning the new insurer.
certificate of authority
(1) A document created by an insurer detailing the authority granted to an agent or
group of agents to act on behalf of the insurer. (2) In the United States, a
certificate issued by a state's insurance department authorizing an insurer to
issue certain types of insurance within the state.
certificate of indebtedness
A certificate issued by an insurer to the beneficiary of a life insurance policy that
specifies a guaranteed minimum interest rate and the frequency with which the
insurer will make interest payments under the interest settlement option.
certificate of insurance
A document given to each person insured by a group insurance plan. This
document shows the type and amount of coverage to which the group member is
entitled and the beneficiary of the coverage. The certificate may also contain a
summary of the contract terms as they affect individual group members.
(1) In reinsurance, the act of ceding. (2) In reinsurance, a parcel or unit of insurance
that a company cedes to a reinsurer.
change of condition provision
An insurance provision stipulating that, for a policy to become effective, all
conditions described in the application must still be true at the time of delivery.
change of occupation provision
An individual health insurance policy provision that grants the insurer the right to
adjust a policy's premium rate or benefits when the insured changes jobs or
A request for payment under the terms of an insurance policy.
claim administration department
The department in a life and health insurance company responsible for
processing claims. In this department, claim examiners review claims presented
by policyowners or beneficiaries, verify the validity of claims, and authorize the
payment of benefits to the proper person.
The person or party making a formal request for payment of benefits due under
the terms of an insurance contract.
An employee of an insurance company whose responsibilities include
investigating claims, approving the claims that are valid, and denying those that
are invalid or fraudulent.
claim frequency rate
In health insurance calculations, the claim frequency rate is the expected
percentage of insured people who will file claims and the number of claims they
will file during a given period. The claim frequency rate is used to calculate
average claim costs, which are used to calculate premium rates.
The process of obtaining necessary claim information in order to decide whether
or not to pay a claim.
A claim department's estimate of the amount of money needed to pay a claim.
The estimate is made with the help of information that the claim department
gathers in the course of handling the claim. This information may involve, for
example, the extent to which the claim is covered by the policy, the effect of
previously paid claims on the amount of coverage available to pay a current
claim, and the effect of any applicable reinsurance coverage on the claim.
class beneficiary designation
A beneficiary designation that names several people as a group—for example,
"children of the insured"—rather than naming each person individually.
A lump-sum life insurance death benefit designed to pay the insured's
outstanding debts and final expenses.
An insurance contract in which the terms of the insurance contract and the
application constitute the entire agreement between the policyowner and the
insurer. Commercial insurance companies use closed contracts. See also open
The process of securing a purchase commitment from a prospect by requesting
and obtaining the prospect's agreement to submit an application for the coverage
recommended in a sales proposal.
(1) In a health insurance policy, the percentage of all eligible medical expenses, in
excess of the deductible, incurred as a result of a sickness or injury, that an
insured is required to pay. Also called percentage participation. (2) A type of
reinsurance plan in which the ceding company pays the reinsurer part of the
premium paid by the insured, minus a proportionate share of the commission and
premium taxes associated with the policy that is being reinsured and a portion of
the ceding company's general overhead expenses. In return, the reinsurer
agrees to pay the ceding company a proportionate part of the death benefit when
a claim is filed and to contribute to all other policy benefits, including dividends,
on a scale determined by the ceding company. In addition, the reinsurer agrees
to accumulate the required reserves for the reinsured portion of the policy.
A stipulation found in most health insurance policies that requires an insured to
pay a stated percentage, in excess of the deductible, of all eligible medical
See cost-of-living adjustment (COLA).
A transfer of some ownership rights in a contract from one party to another,
generally for a temporary period. Insurance policies are often assigned as
collateral for a loan, in which case all transferred rights revert to the assignor
when the loan is repaid. See also assignment.
A life and health insurance company that sells both industrial and ordinary
A clause in a disability income contract that specifies a point at which the
definition of total disability will no longer be based on an insured's inability to
perform his or her "own occupation" but on the insured's inability to perform "any
combination dental plan
A dental plan which contains features of both scheduled and nonscheduled
plans. Typically, combination plans cover preventive and diagnostic procedures
on a nonscheduled basis and other services on a scheduled basis. See also
nonscheduled dental plan and scheduled dental plan.
A pension plan which employs an approach to funding wherein part of the
funding is allocated and part is unallocated. The allocated part of the employer's
contribution is used to purchase annuities or life insurance contracts with cash
values. The unallocated part is placed in a side fund, also called a conversion
fund. See also allocated funding and unallocated funding.
The amount of money paid to an insurance agent for selling an insurance policy.
A commission is almost always calculated as a percentage of the premium.
A method prescribed in the United States for calculating modified net premiums
and reserves for life insurance policies.
common accident provision
(1) A provision of many medical expense insurance contracts which specifies that, if
two or more members of the same family are injured in the same accident, their
combined medical expenses will only be subject to one deductible. (2) A
provision found in many voluntary group accidental death and dismemberment
plans which specifies that the amount payable by the insurance company is
limited to a stipulated maximum for all employees killed or injured in a single
common disaster clause
A life insurance policy provision which states that the primary beneficiary must
survive the insured by a specified period, such as 60 or 90 days, in order to
receive the policy proceeds. Otherwise, the policy proceeds will be paid as
though the primary beneficiary had died before the insured.
Applying the same premium rate structure to certain group insurance
subscribers, regardless of their past or potential loss experience.
company retention method
A method of comparing the costs of various life insurance policies wherein the
present value of premiums, cash values, and dividends is calculated by weighting
each item each year by the probability that it will be paid. See also cost
comprehensive major medical insurance
A form of health insurance coverage that combines the features and benefits of a
hospital-surgical expense policy and the features and benefits of a major medical
conditionally renewable policy
A health insurance policy that grants an insurer the right to refuse to renew the
policy for reasons specified in the policy at the end of a premium payment period.
See also cancellable policy, guaranteed renewable policy, noncancellable and
guaranteed renewable policy, noncancellable policy, and optionally renewable
conditional premium receipt
A type of premium receipt given when the applicant pays the initial premium and
under which life insurance will become effective before a policy is issued only if
the proposed insured is found to be insurable. Also called a conditional receipt.
Compare to binding premium receipt. See also approval type temporary
insurance agreement and insurability type temporary insurance agreement.
A certificate issued to the beneficiary of a life insurance policy that outlines the
amount of life insurance proceeds in a retained asset account, the account
number, and the current interest rate.
An agent's or an insurer's efforts to prevent a policy from lapsing.
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)
In the United States, a statute which requires that employers sponsoring group
health plans offer continuation of coverage under the group plan to employees
and their spouses and dependent children who have lost coverage because of
the occurrence of a "qualifying event." Qualifying events include reduction in work
hours, many types of termination of employment, death, and divorce.
Legally equivalent to physical delivery of a policy. Constructive delivery occurs
(a) when an insurer parts with control of the policy with the intention that the
insurer will be unconditionally bound by the policy as a completed instrument or
(b) when the policy is physically delivered to an agent of the applicant.
As defined by the Fair Credit Reporting Act, a consumer reporting agency's
communication of any information pertaining to an individual consumer's
creditworthiness, credit standing, credit capacity, general reputation, or personal
consumer reporting agency
Any person or organization that regularly prepares consumer reports and
furnishes them, either for profit or on a cooperative, nonprofit basis, to other
persons or organizations. Also called a credit reporting agency. See also Fair
Credit Reporting Act (FCRA).
The period of time (usually two years) during which an insurer may challenge the
validity of a life insurance policy. See also incontestable clause.
Events that are possible but that may or may not happen. Insurers base their
premium rates and their willingness to accept risks partly on the probability that
certain contingencies will or will not occur.
A voluntary reserve established by an insurance company to help pay any
unusual and unexpectedly large claim amounts. See also special surplus funds.
The party designated to receive life insurance policy proceeds if the primary
beneficiary should die before the person whose life is insured. Also called the
secondary beneficiary or the successor beneficiary.
The party who will receive any life insurance policy proceeds that are still payable
under a settlement option at the time of the primary payee's death. Unlike the
contingent beneficiary, the contingent payee's rights do not end when the insured
dies. Also called the successor payee.
A payment that will be made only if some predesignated condition is met, such
as the recipient being alive.
Tables containing morbidity statistics that indicate the distribution of claims
according to the duration of the illness or amount of expense involved in the
continuous-premium whole life insurance
A type of whole life insurance in which premiums are payable until the death of
the insured. Also called straight life insurance.
contract of adhesion
A legally binding agreement that is prepared by one party and that must be
accepted or rejected as a whole by the other party, without any bargaining
between the parties to the agreement. Insurance contracts are contracts of
contract of indemnity
A type of contract in which the amount of the benefit to be paid is based on the
actual amount of financial loss as determined at the time of loss. For example,
many hospital expense insurance contracts are contracts of indemnity. See also
On a Canadian life insurance company's balance sheet, the amount in excess of
par value paid in by stockholders minus the amount of dividends paid to
The maximum annual addition permitted by law to be made to a participant's
account in a defined contribution pension plan. The annual contribution includes
employer contributions, employee contributions, and forfeitures that have been
reallocated from other participants' accounts. The limit is subject to legislative
change and is generally indexed to inflation so that it increases as price levels
increase. In the United States, the contribution limit is set under Section 415 of
the Internal Revenue Code. See also maximum benefit and Section 415 limits.
contribution to surplus
In mutual insurance companies, the income that results when an insurance
company makes more money than is needed to pay for the cost of providing
contributory group insurance
Any group insurance plan that calls for the insureds to pay a portion of the cost of
the group insurance coverage. Contrast to noncontributory group insurance.
Any pension or employee benefit plan in which plan participants can or must
make contributions to the plan out of their own funds. Contrast with
The standardized Annual Statement form that all United States insurers must
complete and submit yearly to their state's insurance regulators. See Annual
The fund in which unallocated employer contributions to a combination plan are
accumulated. Also called a side fund.
(1) The right of a person who is covered by a group insurance policy to convert his
or her group coverage to coverage under an individual insurance policy. Such a
conversion can be made when a person leaves the group, benefits are
downgraded or terminated for a specific class, or when the group master policy is
ended. (2) The right to change insurance coverage in certain prescribed
situations from one type of policy to another. For example, the right to change
from an individual term insurance policy to an individual whole life insurance
convertible term insurance
A type of term insurance that allows the policyowner to change the term
insurance policy to a whole life policy without providing evidence of insurability.
The premium rate is normally based on the age of the insured at the time of the
coordination of benefits (COB) clause
A provision in a group health insurance policy specifying that benefits will not be
paid for amounts reimbursed by other group health insurers. The purpose of a
coordination of benefits provision is to assure that an insured's benefits from all
sources do not exceed 100 percent of allowable medical expenses. See also
cost comparison methods
The different formulas that insurance companies use to show prospective
policyowners the cost of different insurance policies. See also company retention
method, interest-adjusted net cost method, and rate of return method.
cost-of-living adjustment (COLA)
An increase in a pension benefit, disability income benefit or life income benefit
to compensate for an increase in the cost of living.
The amount of credit or weight given to a group's actual claims experience in
determining a projection of future claims or in the calculation of a dividend.
Sometimes called the credibility factor. See also experience rating and
credit life insurance
A type of decreasing term insurance designed to pay the balance due on a loan if
the borrower dies before the loan is repaid.
In the numerical rating system, credits represent underwriting factors that have a
favorable effect on an individual's mortality rating. Credits are assigned negative
values. See also debits and numerical rating system.
The process of selling both property/casualty and life and health insurance, as
well as other financial services products, to the same customer.
A component of a utilization review program that monitors an insured's care while
the insured is hospitalized and encourages the dismissal of an insured from the
hospital as soon as the insured's medical condition no longer warrants continued
current settlement option rates
Settlement option rates that reflect the interest rates currently earned by the
An event or amendment to a pension plan that significantly reduces plan benefits
or employer contributions. Types of curtailments include a reduction of the
expected years of future service of present employees, and the elimination of the
accrual of defined benefits for some or all of the future services of a significant
number of employees.
customer service department
The department in a life and health insurance company that is charged with
providing assistance to the company's policyowners, agents, and beneficiaries.
Customer service specialists answer policyowners' requests for information, help
them interpret policy language, answer questions about policy coverage, and
make changes requested by the policyowner, such as changing the
policyowner's address, beneficiary designation, and mode of premium payment.
The customer service department may also send premium notices to customers,
collect premium payments, and calculate and process policy loans, nonforfeiture
options, dividends, and surrenders. In some companies, the customer service
department also processes commission payments for company agents. Also
called the client service department, the policy administration department, the
policyowner service department, and the service and claim department.